PM Narendra Modi sits on hot potatoes

New Delhi/Mumbai: Potatoes led the increase in food prices that rose sharply to 8.58 per cent in May from 7.06 per cent in April, pushing the wholesale price inflation for May to 6.01 per cent compared to 5.20 per cent in April.

This came as a nasty surprise as last week’s consumer price inflation for May eased to 8.3 per cent from 8.6 per cent the previous month, creating a feel good factor that wholesale prices would ease. Food inflation was fuelled mainly by a spike in potatoes prices (up 31.44 per cent), fruits (up 19.4 per cent), rice (up 12.75 per cent ) and meat, fish and eggs (up 12.47 per cent). And the summer has only just started.

While finance minister Arun Jaitley blamed hoarders, commerce minister Nirmala Sitharaman said, “If inflation is going to continue because of supply side constraints or because of any other factor, the government is working to anticipate any such shortcoming, to anticipate the loss in production and prepare for it. That indirectly will have an impact on inflation.”

Core WPI inflation rose to 3.8 per cent in May from 3.4 per cent last month largely due to higher prices of basic metals, wood, paper products inflation.
Fuel prices were also up. There seems to be little respite on the fuel front with the Iraq civil war threatening crude supplies.

“Today’s WPI indicates that from the input side, there is not much comfort for the Indian business segment, with the metal and chemical prices moving on the higher side,” said Indranil Pan, chief economist, Kotak Mahindra Bank.

Barclays said in a note that the rise in fuel group inflation was also larger-than-expected reflecting both the one rupee per litre hike in diesel prices in May and upside surprise in non-administered fuel prices.

However, it said “we expect subsequent WPI-based inflation releases to be substantially lower, with the rate likely at sub-5 per cent yoy levels in Q3 2014.